Auditing: Identifying and Assessing Risks of Material Misstatements

Running head: AUDITING
Auditing
Name of the student
Name of the university
Student ID
Author note

1AUDITING
Ref:
To: Audit manager
From: Audit Senior
Date: 30th June 2018
Subject: Audit for Steel Limited
Introduction
As the audit manager of XYZ Limited, I have completed the preliminary assessment of Steel
Limited for planning the audit of the company. Main objective of this memo is to highlight
the account balances exposed to audit risks owing to the ongoing business practices of the
company as outlined under ASA 315 – Identifying and Assessing the Risks of Material
Misstatements through Understanding the Entity and its Environment’. The memo will further
outline the key assertions involved with the identified accounts (Knechel and Salterio 2016).
Finally, based on the misstatement audit plan will be recommended as per the requirement of
ASA 300 – Planning an Audit of a Financial Report.
Accounts involved with risks and key assertion
Delayed shipments due to tight checks by the custom officials from Australia will definitely
have an adverse impact on sales and the associated account that is accounts receivables.
Sales revenue as well as the accounts receivable will also be impacted as Indian customers
are intimidated to deduct 20% of payments due as a penalty against time lost in production
(Louwers et al. 2015). Further, the inventories will also be at risk as one of the customers of
Steel limited, Construction Limited claimed that the latest batch of the steel delivered by the
company contains high level of the cheap additives like boron. This in turn will turn down the
customer to purchase further steel from the company and will leave negative impact in the
market that will result into lower level of sales and excess level of inventories. Further due to
mismatch in payment system that is split of the payments in $AUD amounts and $US
amounts the accounts payable will also be at risk (Contessotto and Moroney 2014).
As the company is not able to make the delivery on time due to time lost in checking by
Australian custom officials, it is expected to lose significant amount in sales that will
eventually have an impact on the amount of account receivables. However, if the company